GST Liability on Director's remuneration

The issue of remuneration to directors has been examined under following two different categories:

• leviability of GST on remuneration paid by companies to the independent directors defined in terms of section 149(6) of the Companies Act, 2013 or those directors who are not the employees of the said company; and
• leviability of GST on remuneration paid by companies to the whole-time directors including managing director who are employees of the said company.

Whether or not a "Director" is an employee of the company. In this regard, from the perusal of the relevant provisions of the Companies Act, 2013, it can be inferred that:

• the definition of a whole time-director under section 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company.
• the definition of "independent directors" under section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 makes it amply clear that such director should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company.

Therefore, in respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services,  the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis. 

It is hereby clarified that the remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis.

Accordingly, it is clarified that the part of Director's remuneration which are declared as "Salaries" in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment.

It is further clarified that the part of employee Director's remuneration which is declared separately other than "salaries‟ in the Company's accounts and subjected to TDS under Section 194J of the Income Tax Act as Fees for professional or Technical Services shall be treated as consideration for providing services, and is therefore, taxable. The recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.

Copy of Circular: Clarification in respect of levy of GST on Director’s Remuneration